EV Tax Credit Survives Tax Bill Reconciliation

The credit of up to $7,500 remains untouched.

As lawmakers continue to work on comprehensive tax reform, one item related to the automotive industry on the table was the tax credit for electric vehicles. The credit, which can be up to $7,500, was dropped in the House version of the bill but kept in the Senate version. The credit was started in 2009 as part of the economic stimulus package as a way to encourage investment by auto manufacturers in the development of electric powered or assisted vehicles. The the current version of the bill in reconciliation keeps the credit. Analysts estimate that scrapping the credit would save $200 million over the next 10 years.

The credit is capped at 200,000 qualifying vehicle per manufacturer, which no automaker has yet reached. Most manufacturers have announced billions of dollars in investment for sweeping changes to their lineups with many models gaining plug-in hybrid variants over the next 5 to 7 years.

Share this comment

Link to comment

Share on other sites

The already limited demand for EVs dries up, no longer a reason to invest.

When EV tax credit in Georgia ended, sales there cratered.

If you need an existing example, when many state tax credits for residential solar power dried up, the US solar manufacturing and installation industry cratered and now most solar panels and solar development is done in China.

Since China and Europe are continuing to push for EVs, I would expect all R&D to move there.... along with all of the peripheral development on batteries.

Share this comment

Link to comment

Share on other sites

Well you have to think on a macro scale. $20 million is less than a penny of your taxes. But the investment by those companies represents billions in payroll and high paying jobs. More jobs in the US means higher pay on average (usually). Having just a slightly tighter job market means you get more than your penny back in better wages.

Share this comment

Link to comment

Share on other sites

Since China and Europe are continuing to push for EVs, I would expect all R&D to move there.... along with all of the peripheral development on batteries.

And rebuttal that quote this way:

11 minutes ago, ccap41 said:

So the loss of billions is income taxes on corporations developing? Because I would not be losing money, you would not be losing money, and the $200m could be invested other places that need funding.

which is a fair and decent way to counter.

But...dont be a-cryin' when jobs in your country are that much less and the "real" jobs are leaving to go to to "foreign" lands. Dont be a-complainin' about your Presidential leaders not doin' enough to create "new" jobs and dont be a-fussin' and yellin' that the country needs more education in schools...and that your country needs to bring back manufacturin' jobs...

Share this comment

Link to comment

Share on other sites

Well you have to think on a macro scale. $20 million is less than a penny of your taxes. But the investment by those companies represents billions in payroll and high paying jobs. More jobs in the US means higher pay on average (usually). Having just a slightly tighter job market means you get more than your penny back in better wages.

Share this comment

Link to comment

Share on other sites

If the EV credit is preventing sales from 'cratering', are not Tesla and GM teetering on such a cratering in 2018 when their credits begin to ratchet down? What manufacturer is going to spend 'billions' to sell 200K units all at a loss, then see that segment cease to exist??

No; OEM EV development is not tied to the tax credits the purchaser sees. OEMS are betting on future sales to continue to grow & spread. Their foresight reaches well beyond 2018 here. IF the credit were immedaitely killed, development would continue unabated.

- - - - -

At this point, talking about keeping/killing the EV credit is largely inconsequential- those talking about it on the Hill are evoking ideology, not financials. So wish it were the other way around, in general.

Share this comment

Link to comment

Share on other sites

These tax credits are going to expire in a few years, by 2020 most car makers will have used up their 200,000 units anyway. So it doesn't really matter too much if they keep it in or out. Even if they get this tax bill passed, it don't know if it would even take effect next year, the government does nothing fast.

Share this comment

Link to comment

Share on other sites

But...dont be a-cryin' when jobs in your country are that much less and the "real" jobs are leaving to go to to "foreign" lands. Dont be a-complainin' about your Presidential leaders not doin' enough to create "new" jobs and dont be a-fussin' and yellin' that the country needs more education in schools...and that your country needs to bring back manufacturin' jobs...

Quoted for truth...given our limited ability to invest and think for the future, we will never regain a meaningful lead.

Share this comment

Link to comment

Share on other sites

These tax credits are going to expire in a few years, by 2020 most car makers will have used up their 200,000 units anyway. So it doesn't really matter too much if they keep it in or out. Even if they get this tax bill passed, it don't know if it would even take effect next year, the government does nothing fast.

They don't go away at 200k units. It then gets cut in half to $3750 for another 200k units then cut in half again for the remaining 200k units before completely expiring.

Share this comment

Link to comment

Share on other sites

They don't go away at 200k units. It then gets cut in half to $3750 for another 200k units then cut in half again for the remaining 200k units before completely expiring.

Not quite. I believe what happens is that after 200K units are sold, it drops 50% to $3750 the second quarter after the 200K mark is hit. The 4th quarter after the 200K mark it hit it drops to 25% ($1875).

So after the 200K mark is hit, the credit switches to a quarterly-based timetable vs. production volume.

That makes sense if the idea is to 'get EV sales rolling'.

I still feel that there are a HUGE quantity of Model 3 depositers that were counting heavily on $7500 off of the announced $35K = a '$28K Tesla mini Model S'.

Share this comment

Link to comment

Share on other sites

Balth, you're only thinking about profitability right now. GM, Porsche, Volvo have all said that they expect their next round of EVs to be profitable. The tax credit helps tide over sales until that point. In that regard, the tax credit is doing exactly what it set out to do... prime the pump of EV infrastructure from the supply side. With all of the investment to ramp up production of electrified vehicles, the unit costs for manufacturers will come down. It took those subsidies to bring residential solar to the the point where it was on par with fossil fuel generation and the same is taking shape for EVs. Just a few more years and it will be there.

Share this comment

Link to comment

Share on other sites

Couple of thoughts here...the $200 million is about 70 cents for every American to keep our auto industry relevant. If you don't want to spend 70 cents for each member of your household to keep our auto industry relevant than I really, really hope you enjoy it when you are buying Euro and Asian iron because American auto industry is no longer relevant.

Also, if you want to do actual costs, I will play that game also. Put the costs of escorting tankers through the gulf and the costs of our interventions in the middle east...and the environmental costs, the actual environmental costs....on to a gallon of fuel.

Do that, and when Diesel is $22.50 a gallon Balthazar and OCNblu will use a "Tesla" electrical tow truck to move a certain Duramax and a certain Jeep into the scrap metal yard, because they will have lost all relevance as transportation.

3 hours ago, Drew Dowdell said:

Balth, you're only thinking about profitability right now. GM, Porsche, Volvo have all said that they expect their next round of EVs to be profitable. The tax credit helps tide over sales until that point. In that regard, the tax credit is doing exactly what it set out to do... prime the pump of EV infrastructure from the supply side. With all of the investment to ramp up production of electrified vehicles, the unit costs for manufacturers will come down. It took those subsidies to bring residential solar to the the point where it was on par with fossil fuel generation and the same is taking shape for EVs. Just a few more years and it will be there.

At some point, a tipping point will be reached and their will be no going back. Same thing happened moving from Ocean liners to Air transport in the 1950's. When the Andrea Doria sank in 1956, she was only a couple of years away from loosing relevance. By 1958 more people crossed the Atlantic by Air, and the Ocean liners have never come back.

Share this comment

Link to comment

Share on other sites

Not quite. I believe what happens is that after 200K units are sold, it drops 50% to $3750 the second quarter after the 200K mark is hit. The 4th quarter after the 200K mark it hit it drops to 25% ($1875).

So after the 200K mark is hit, the credit switches to a quarterly-based timetable vs. production volume.

That makes sense if the idea is to 'get EV sales rolling'.

I still feel that there are a HUGE quantity of Model 3 depositers that were counting heavily on $7500 off of the announced $35K = a '$28K Tesla mini Model S'.

There are. Given the cost in blood and toil in importing oil, as well as the environmental costs I would quite happily make the subsides permanent. It would be far cheaper.

For a small portion of our national defense budget we could electrify the transportation in major cities. Go one major city at a time and do away with say 60 percent of the fossil fuel vehicles. In a few years, we could make major progress.

Share on other sites

Share this comment

Link to comment

Share on other sites

Couple of thoughts here...the $200 million is about 70 cents for every American to keep our auto industry relevant. If you don't want to spend 70 cents for each member of your household to keep our auto industry relevant than I really, really hope you enjoy it when you are buying Euro and Asian iron because American auto industry is no longer relevant.

Also, if you want to do actual costs, I will play that game also. Put the costs of escorting tankers through the gulf and the costs of our interventions in the middle east...and the environmental costs, the actual environmental costs....on to a gallon of fuel.

Do that, and when Diesel is $22.50 a gallon Balthazar and OCNblu will use a "Tesla" electrical tow truck to move a certain Duramax and a certain Jeep into the scrap metal yard, because they will have lost all relevance as transportation.

At some point, a tipping point will be reached and their will be no going back. Same thing happened moving from Ocean liners to Air transport in the 1950's. When the Andrea Doria sank in 1956, she was only a couple of years away from loosing relevance. By 1958 more people crossed the Atlantic by Air, and the Ocean liners have never come back.

Interesting about the True Cost of Oil for Gas as I was just looking into this myself and the IAGS, Institute for the Analysis of Global Security states that right now just for the Persian Gulf Military escorts of Oil around the gulf and out of it, the yearly cost is about $50 Billion.

While we might pay anywhere from $3 to $5 dollars a gallon, our real cost if all the costs were passed onto ICE owners would be in the $20 to $30 dollar a gallon range.

Our dependency on oil from countries that are either politically unstable or at odds with the U.S. subjects the American economy to occasional supply disruptions, price hikes, and loss of wealth, which, according to astudycommissioned by the U.S. Department of Energy, have cost us more than $7 trillion present value dollars over the last 30 years. That is more than the cumulative cost of all of the wars fought by the U.S. since the Revolutionary War. The transfer of wealth to oil-producing countries - $1.16 trillion over the past thirty years - significantly increased our trade deficit. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.

Share this comment

Link to comment

Share on other sites

1 : I take all OEM announcements with a 5lb bag of salt. Case in point: Tesla, in general.

2 : The credits, or the suspension of such, is a discussion for now... when EVs become profitable is in the future. I expect at some point for them to be profitable, yes. But OEM R&D expenditures must also be tabulated in any overall discussion of profitability, and those are huge and running counter to economies of scale. We'll see. I'll state again- at this point I have no issue with EV credits- the cat is out of the bag & well down the street.

3 : diesel will never see $22.50... or $10/gal anytime in the next 20 years. EV's (painfully slow) expansion takes demand off of diesel/gas, increasing supply. The wildcard is the reduction of production. Keep in mind that the $140/barrel was purely speculative- I don't think we're going to see such a market focus on petroleum again. Investors are forward looking, and idealogically, "EV power is the future".